The U.S. – Mexico Trucking Dispute

Mexico’s case to continue the process that would allow Mexican truckers into U.S. territory is getting a helping hand from an unexpected source.

According to a U.S. Chamber of Commerce study, the U.S. government’s decision in 2009 to end a cross-border trucking program with Mexico, and subsequent economic retaliation by the Mexican government, has already resulted in 25,600 lost American jobs, $2.6 billion in foregone U.S. exports, and $2.2 billion in higher costs for U.S. businesses and consumers.

The situation is a clear violation of the U.S. to the North American Free Trade Agreement (NAFTA), but the powerful Teamsters Union lobbied its way in the U.S. Congress to effectively stop the so called “pilot program” for Mexican trucks.

The Teamsters Union has strongly opposed the opening of U.S. highways to Mexican truckers based on safety arguments and the job losses in the U.S. They argue that NAFTA alone has cost at least 1 million U.S. jobs by giving U.S. businesses incentives to relocate production to lower-cost Mexican locations and maintain that Mexican truckers continue to pose a safety and environmental threat in the U.S.

But the U.S. Chamber of Commerce study states: “The United States revoked a compromise effort to implement, at least in part, its North American Free Trade Agreement obligations to permit full U.S.- Mexico cross-border trucking (the “trucking pilot program”), and Mexico responded with the imposition of retaliatory penalty duties on imports from the United States.

Both actions have a negative impact on U.S. companies and their workers.

THE BACKGROUND

The U.S. Chamber of Commerce study says: Between 1982 and 2007, the United States limited the access of Mexican trucks to the roughly a 25-mile commercial zone along the U.S. border and certain U.S.

border cities. U.S. and Mexican trucks must deliver cargo-laden trailers to the border, hire short-haul “drayage” haulers to pull their trailers across the border, which then return empty to Mexico or the United States. Long-haul trucks on the other side then pick up the trailers and take them to their destination.

This system prevailed despite the requirements of NAFTA that the United States and Mexico phase out restrictions on cross-border passenger and cargo services.

The U.S. refusal to implement the NAFTA trucking provisions continued despite a 2001 NAFTA dispute settlement panel decision that found the U.S. restrictions violated its NAFTA obligations, followed by litigation barring implementation of the NAFTA trucking provisions without full environmental impact statements.

The Supreme Court finally reversed the lower court decision in 2004, and the United States and Mexico agreed to a short-term joint demonstration “pilot” program, the “Cross-Border Demonstration Project,” that went into effect in September 2007. The United States allowed up to 100 trucking firms from Mexico to transport international cargo beyond the commercial zones along the U.S.-Mexico border and Mexico allowed up to 100 U.S.

trucking firms to transport international cargo into Mexico.

The trucking pilot program was originally designed to run for one year. On August 4, 2008, the United States and Mexico extended the program for another two years.

However, the FY2009 Omnibus Appropriations Act enacted in March 2009 ended funding for the program on March 11, the date President Obama signed it into law.

Mexico responded on March 16, 2009 with an announcement that it would retaliate against the United States for the cancellation of the trucking pilot program. On March 19, Mexico imposed penalty duties on $2.3 billion in imports of 89 products from the United States, with an immediate duty cost of about $421 million. (Mexico has continued to allow U.S. trucks to travel into Mexico beyond the border area.)

THE CURRENT SITUATION

In short, since March, U.S. companies and consumers have been bearing not only the drayage costs associated with transferring cargo from Mexican trucks to U.S. trucks – an estimated $739 million -- which are passed on to U.S. consumers in the form of higher costs, but U.S. exporters have been bearing the costs of Mexican retaliation as well, an additional $421 million, which have a negative impact on U.S. production for export, and associated employment impacts.

The U.S. Chamber of Commerce estimates that: “The net negative impact of continuation of drayage and Mexican retaliation cause U.S. exports to decline by $2.6 billion and that the impact on U.S.

employment of the failure of the United States to implement the trucking provisions of NAFTA coupled with Mexican retaliation equals 25,600 jobs.” The study explains in detail the numbers behind its conclusions: “There are two costs now associated with the failure by the United States to implement the NAFTA trucking provisions.

First is the need to incur drayage costs thanks to the cancellation of the trucking pilot program. The U.S. Department of Transportation estimated that drayage costs $100-$200 per truck crossing.

In 2008, total border crossings from Mexico into the United States reached 4,866,252. Multiplying the mid-point of the per-truck crossing cost, $150, by the number of truck crossings yields an annual cost estimate of drayage of $739 million in 2008.” “This cost is passed on to U.S. consumers, ultimately, in the form of higher prices for goods imported from Mexico. On top of the drayage costs, U.S. exporters are now facing retaliatory tariffs on certain goods exported to Mexico equivalent to about $421 million based on 2008 exports.”

THE FUTURE

Every time the U.S. and Mexico’s Presidents or their transportation ministers meet, they concur to retake negotiations and search for potential solutions.

But, as long as the level of unemployment in the U.S. remains high, and as long as the sentiment to “Buy American” remains as a key policy to expedite the economic recovery in the U.S., it is quite unlikely that an agreement will be reached in the short term, though.